The New York Department of Financial Services (DFS) has released a new set of guidelines for regulated cryptocurrency firms with BitLicense, which issue U.S. dollar-backed stablecoins.
Stablecoin Regulations for BitLicense Companies
According to the New York regulator, the new rules published on Wednesday (June 8, 2022) seek to emphasize certain requirements that apply to dollar-pegged stablecoins issued by DFS-regulated entities. The guidance focuses on backing and redeemability, reserve requirements, and independent audits.
For backing and redeemability, the DFS said stablecoins should be backed by a reserve of assets. Also, the issuer should have clear redemption policies approved by the New York watchdog and will be required to segregate assets in the reserve from their proprietary holdings.
The reserve’s assets should comprise U.S. Treasury Bills, reverse repurchase fully collateralized by such bills, notes, or bonds.
In addition, assets in the reserve “must be held in custody with U.S. state or federally chartered depository institutions and/or asset custodians.” The guideline also stipulates that the reserves must undergo a monthly audit by the United States licensed independent Certified Public Accountant (CPA).
Meanwhile, the DFS noted that the rules do not limit the power of the regulator. An excerpt from the guideline said:
“DFS may, at any time and in its sole discretion, prohibit or otherwise limit a stablecoin’s issuance or use before or after a DFS-regulated Issuer begins issuing the stablecoin and may require that any such Issuer delist, halt, or otherwise limit or curtail activity with respect to any stablecoin.”
According to a statement from New York State DFS Superintendent Adrienne A. Harris:
“Leveraging our years of expertise in the space, our Regulatory Guidance today creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.”
More Countries Keen on Stablecoin Framework
Regulators in different jurisdictions, especially the United States, have been working towards regulating the stablecoin market. But the need for a stablecoin regulatory framework seems to have intensified following the collapse of Terra (LUNA) and UST.
The U.K. government recently proposed some amendments to the existing rules that would mitigate the risks associated with failed stablecoin projects. SEC Commissioner Hester Peirce also noted that there could be an accelerated push for stablecoin guidance.